This week’s topic is arguably one of the most critical to success in becoming a debt-free millionaire doctor. Unfortunately, it’s also a topic many run from even though they know it has the power to change their financial future. Why is that? Why do so many struggle with completing a monthly budget? How can doing a monthly budget become something you look forward to each month? How can the budgeting process be made simpler to ensure it is done each month? In this blog post we’ll uncover some answers to these questions to help you win with your budgeting process.
Let’s start with why so many struggle to budget. Why is it budgeting seems to be something most can agree is a good idea, but yet struggle to consistently complete each month. For many it can be depressing to look at all the bills you have, and not budgeting is an easy way to look the other way. It’s in some ways like stepping on the scale when you know you have 50 pounds to lose. It’s ugly, and we don’t like looking at ugly, so we ignore it. Well, just because you ignore it doesn’t mean it doesn’t exist. So, start with the fact that it can only get better by looking at it. You need to face your current reality if you want to create a better future!
We have to look no further than the latest research on millionaires to see if budgeting is really necessary. In The Next Millionaire Next Door Drs. Thomas Stanley and Sarah Fallaw discovered 70% of millionaires know exactly how much they spend each year. Chris Hogan studied over 10,000 millionaires for his book, Everyday Millionaires, and found over 60% budget. Perhaps even more important is that Hogan reports 93% of the millionaires he studied stuck to their budgets each month. Clearly, the majority of millionaires would agree budgeting is important to financial success.
Take control of your money or it will take control of you.
Now it may be a stretch to believe you will at some point actually look forward to budgeting each month, but it’s possible that if you shift your mindset related to budgeting it won’t be something you absolutely want to run away from. Jana was at one time less than what you might call “excited” to do the monthly budget, but one small shift in her thinking changed how she views budgeting that may help you.
Jana’s take on budgeting…
Once upon a time the mere thought of a budget made me run the other way until I realized what was causing my problem – my thoughts related to budgeting. Let me introduce you to a thought model that ultimately drives our results and how one thought changed everything for me.
First, there is a circumstance. This is a completely neutral fact that everyone would agree upon. For example, the temperature outside. No dispute. It is 45 degrees.
That circumstance triggers a thought. Everyone could have a different thought about the same circumstance. I’m from sunny California and think that 45 degrees is freezing. Midwesterners might think that sounds amazing and warm in the middle of winter.
This thought you have sparks a feeling. A feeling or emotion is a one-word descriptor. This will motivate your action, inaction, or reaction that gives you some result. That result is always a reflection of that original thought.
So, let’s revisit my original thoughts on budgeting.
Circumstance: The budget.
Thought: It’s too restrictive and I don’t want to spend my time doing that.
Action: Avoid sitting down with my husband to budget like it was the plague.
Result: No progress in paying off debt or being on the same page with our finances as my husband.
Then one day my husband said what if it were just permission to spend. WHAT?!? I get the OK to spend money? This is something I could try. So, the new thought model became…
Circumstance: The Spending Plan (already better connotation).
Thought: I want to have permission to spend our money and be on the same page with planning as my husband.
Feeling: Empowered, motivated.
Action: Sit down and make a written budget monthly with my husband.
Result: We paid off debt, shared our goals, and have an amazing marriage with better communication. Ultimately, we have become debt-free millionaires all before I turned 40.
It may not be that you can go from one side of a canyon to the other in one big leap (i.e. from dreading the budget to feeling empowered and motivated to budget). Think of a rope suspension bridge and taking small steps in the right direction. A little change in a thought to get you one step closer to where you want to be. I do believe I had to make several adjustments to my thoughts along the way. I just didn’t know it at the time.
I went from, “I never want to be restricted by or spend the time creating a budget”, to “I could try budgeting once because having permission ahead of time seems like a good idea”, to “I can see the benefits, we are planning and making decisions ahead of time”, to “I look forward to our budget meeting and they are essential to our success.”
Eventually, the new thought is so true to you, down to your core, you don’t even have to think about it. It is a belief you hold true even if it is only a thought in your head. My belief now is that budgeting is key.
I now look forward to our monthly budget meetings. I’m usually the one making sure we make the time on our calendar. I won’t lie. The first one was tedious. We were using complicated excel spreadsheets (courtesy of my husband). It wasn’t always easy especially in the beginning, but our marriage is stronger and better than ever because I replaced that one thought that hindered us, with one that served me, us, and our goals. Sometimes you just need a different perspective.
Jana illustrates a key element to succeeding with budgeting and with just about everything in personal finance for that matter. A change in your thinking can have a dramatic positive impact. When you start to take control of your thoughts instead of letting them control you, big changes happen in your life.
Money is a horrible master, but an excellent slave. Do you want to be a master to your money or its slave?
Try this simple exercise if you need help getting started with budgeting.
First, write the word “budget” at the top of a sheet of paper. What thoughts come to your mind when you hear the word budget? Write these words below the word budget. Also, do different thoughts come to mind when you hear the words “spending plan”? Sometimes just simply changing what you call something can have a significant effect on your thoughts about it. For example, the word “exercise” is one many of us dread but change exercise to “taking a walk” and thoughts for some of us begin to shift more toward the positive. Remember, words have power!
Next, on the same sheet of paper write the feelings your thoughts on budgeting create in you. If negative feelings arise when you hear the words budget or even spending plan ask yourself why that is? What reasons do you believe these words bring negative feelings with them? Write down your reasons.
Maybe it’s because you feel budgeting takes too long. Perhaps you’ve tried budgeting in the past and failed at it. Maybe you’re like Jana and you feel budgeting is a method of restricting your spending instead of freedom to spend. Whatever the reason write it down.
Now, consider thinking about the high percentage of millionaires who budget, and how budgeting / knowing where their money goes each month helped them win with money. Another thing to consider is why you might feel budgeting is a cumbersome and time-consuming process, assuming that is one of your feelings about budgeting. The essence of this step is to understand not only what you feel, but why you feel the way you feel.
This exercise is one we suggest doing by yourself and then sharing with your spouse to see how you compare to one another. If you skip this step you may find that you are like us in that for Scott, he loved budgeting and all the numbers, spreadsheets, etc. – the more complicated the process the better! Unfortunately, for Jana she felt the opposite, and this is one case where opposites definitely don’t attract!
What will likely happen is the one who likes budgeting will take the lead and the other will either follow reluctantly or not follow at all causing tension in your marriage. Another challenge that is common is that the one managing the budget becomes ill or passes away and the one left behind is in the dark on all financial matters. Being on the same page with your finances is reinforced each month when you complete your budget together. Believe it or not, budgeting can be great for improving a marriage!
Budgeting tips and tricks.
We close out this blog with some basic actions you can take to ensure your budgeting not only gets started, but continues on each month going forward. The biggest thing is to not overcomplicate it. For certain the first month will be the most time consuming as you get started in understanding your spending behaviors. A few approaches to consider are looking at your past six months of spending to get an average of how much you spent each month in each of your budget categories. Another approach is to estimate what you will spend in each of your categories. In either case it will take 2-3 months to really get your budget polished and accurate.
Something else to consider is not getting drastic in making spending reductions in any category as you get started. Make an initial goal to simply start the budgeting process and then over the next few months start looking for categories to reduce spending that can be used to get more aggressive in paying off your debt.
You can either tell your money where to go or it will tell you where it went. You decide.
If you are pressed for free time you might also consider putting your budgeting session on the calendar each month during a time you and your spouse can be alone and away from distractions. We’d suggest at least a few hours for the first budget and then about an hour each month once you’ve got the process down.
One final thought is considering using a budgeting app to simplify the process. You can use a spreadsheet or pencil and paper, but the harder it is to complete the less likely you will continue to use it. We use everydollar to track our monthly expenses and love it because it allows you to securely connect your accounts to see all transactions in real-time for easy tracking throughout the month. It also lets you start with your previous month’s budget to create the new month’s budget, which saves a lot of time since many categories won’t change much from month-to-month. There are a ton of other great budgeting apps like YNAB and Mint. Find one that works for you and get started this month!
You can do this!
You control your thoughts and feelings that lead to your actions and results. Spend some time on your thoughts and feelings to get them where they need to be to get the action of making budgeting a normal part of your life you have to think little about and the results will come. Consider the opposite approach of just “winging it” and hoping everything financial related in your life will work itself out.
How likely do you think that plan, or better stated, lack of plan, will work out. You’ve all likely heard the adage, “failing to plan is planning to fail.” You will see that as you make your monthly spending plan a part of your life at the same time the results of paying down your debt will help motivate you to keep going. We’re also here to motivate you. Sign up for some weekly motivation in your inbox and email us your budgeting success stories here.